Sky booked a £343m loss on its investment in ITV after the Government risked the wrath of the country's biggest media company by ordering it to reduce its stake in the broadcaster.
Upholding an earlier ruling from the Competition Commission, John Hutton, the Secretary of State for Business, Enterprise and Regulatory Reform, said yesterday that Sky would have to sell down its 17.9 per cent stake in ITV to less than 7.5 per cent because the holding led to a "substantial lessening of competition" in the UK television market. Most analysts expect Sky to appeal against the ruling, which it must do in the next four weeks. The company said it "will give careful consideration to the announcement and confirm any further steps in due course". If it does appeal, the pay-TV giant could drag the process out by another year or more.
Redwan Ahmed, at Oriel Securities, said: "They lose nothing by appealing." Sky has argued that, as a minority shareholder without board representation and no power to block a special resolution, it does not exert control over the company and thus its position is not anti-competitive. The Government has already heard these claims, so the chances of a successful appeal are scant.
Mr Ahmed said Sky waslikely to "end up selling thewhole thing rather than selling it down [to 7.5 per cent]".
He added that the company would rather unload the stake to a trade buyer, such as RTL, but that it would probably have to drip-feed the shares into the market. "If they had a trade buyer by now, they would have already sold," he said.
Sky said it would recognise a loss of £343m on the investment in the accounts for the financial year that ended on 31 December. When the then Sky chief executive James Murdoch bought the stake in late 2006 for £946m, the move in effect killed a plan by pay-TV rival Virgin Media to take over the free-to-air broadcaster. ITV's shares have fallen since then. The £343m figure, which is well beyond the £250m postulated by some analysts, is due to the value being accounted for based on the last trading day, 28 December, of last year.
ITV welcomed the move by Mr Hutton, as the decision would ultimately serve to remove a blocking shareholder from its register. The company said it was "in the best interests of the overwhelming majority of our shareholders". ITV shares rose by 1.9 per cent to close at 73.5p.
Neil Berkett, acting chief executive of Virgin Media, said that the decision confirmed the group's contention at the time that it "was anti-competitive and contrary to the public interest". He added: "We now hope that this matter can be brought to a close as quickly as possible."
Industry sources said it was unlikely Virgin Media would make a fresh approach if Sky does reduce its holding. The company still has a heavy debt burden from its acquisition of NTL Telewest and would not be able to offer the cash that would be attractive to ITV shareholders.